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Is Buying An Extended Warranty Ever A Good Idea?

By David Bakke

never buy extneded warranty for laptopI have long been of the belief that extended warranties offered on any product are an absolute waste of money.  The benefit that you get out of them is usually zero, and most companies know that.  For the majority of all products which generally have this extended warranty, their average lifespan far outweighs the short time of these extended warranties. On a side note, I am the type of person that likes to buy a brand new electronic (whether it is a laptop, flat screen TV or something else) and keep it for a long time.  So if there were ever a person that an extended warranty was designed for, it would be me.

Reasons Not To Buy Them

Often, people don’t realize that many of their products have fairly low repair rates, which should dissuade them from purchasing these warranties. A few other great reasons to never buy an extended warranty are that, a lot of times, this extended warranty merely overlaps a warranty that is already in place by the manufacturer and comes at no extra cost.  Also, a lot of credit card companies offer product protection coverage as part of their deal, so you could be covered under that as well.

Lastly, and perhaps most importantly, these products generally should not break on their own. These companies’ reputation depends on their products’ reliability and the companies would go down the drain if there was a always a TRUE need for warranties. Of course this also depends on how well you take care of your product (and there is admittedly a little bit of a luck factor involved as well).

OK, so I guess we can all say that we should never ever buy an extended warranty, right?

Wait a minute…

Never?  Never ever?

Recently, a few personal experiences of mine and a little research have led me to shift my opinion on this topic a little bit. I purchased a laptop for my wife about a year ago from one of the major retailers and of course, I turned down the warranty.  A few months back, they sent me a “birthday card” for my laptop.  It was pretty cute, but if you ask me, it was their roundabout way of telling me that the manufacturer’s warranty was up on the laptop. 

Well, as luck would have it, not even a few weeks later, I started having problems with it.  It would just turn off for no reason.  I had a few of my computer “experts” look at it, and they all came back with the same wonderful news that it was the motherboard.  Yep, the motherboard was shot and there was nothing that could be done.  Sure, I could replace it at close to the cost of the laptop itself, but what good would that do?  Obviously, had I bought the extended warranty, it would have been covered.

Next, one friend of mine and one family member recently had about the same experience with their flat screen TV.  Shortly after the one year was up (standard time frame for a manufacturer’s warranty), they both had what I call “catastrophic” issues with their televisions.  By “catastrophic” I mean something went wrong with it that made no financial sense to fix as opposed to buying a new one.  Neither had purchased any kind of extended warranty, so they were both out of luck.

So this led me to do just a little bit of research. 

A Few Cold Hard Facts

These are the pertinent facts that I came up with:

  • 43% of laptop computers, three to four years old, need repairs.  Typical repair cost: between $100 and $400.
  • Only 3% of flat screen TVs need repairs in the first three to four years, and most of the repairs needed were free anyway (that is, covered by the manufacturer’s warranty).
  • No other item that I looked into (large household appliances, cars, and smaller electronics) even seemed to ever justify buying the extended warranty, as I suspected.

Extended Warranties:  The Final Word

The ONLY time I would consider an extended warranty is for a laptop computer.  And this would be after I had a thorough knowledge of the warranty and had looked around to see what competitors had to offer regarding a warrranty, and had researched the reliability of the brand name itself. Plus, it would have to be a laptop that was more expensive than $500. If you’re buying a Macbook or Macbook Pro for more than $1,000, it’s a good idea to get the extended warranty. If you’re buying a $350 Acer computer, the cost of the extended warranty won’t make sense. If it goes out on you in two years, just buying a new one is the best thing to do.

Contrary to what I originally thought, I still would NOT consider buying an extended warranty on a flat screen TV.  The odds are simply too low.  I thought long and hard about why I did not purchase that extended warranty for my laptop. But then I realized that if I added up the cost of all the extended warranties that I did NOT purchase over the years, this would have paid for the laptop itself.  So, in the long run, I have saved. And, as stated in the beginning, I would never consider buying the extended warranty on any other consumer electronic item

Some people buy these warranties anyways.  I guess they both have the extra money and don’t mind spending it. Maybe they need the peace of mind, who knows.  However, as the sales associate recently told me when I refused my latest offer of an extended warranty, if you decide to spend your money on these products without a warranty, “Proceed at your own risk.” The good news is that the chances of your consumer electronic item breaking within the first couple of years is highly unlikely.

(photo credit: dprevite)

David Bakke
David started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called "Don't Be A Mule..." Since then he has been a regular contributor for Money Crashers. He lives just outside Atlanta, GA and most all of his free time is taken up by his amazing three year old son, Nicholas.

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  • H

    I too think they are generally a waste; however, if I am buying a laptop direct from the manufacture and they offer the “No Questions Asked” extended warranty I will buy it every time. I am extremely hard on my laptops and can guaranty that I will spill water or knock it off the kitchen table within the warranty period. I have had great experience with these warranties and when you send the laptop which is about to die in for repairs the month before expiration you get at least another year or two out of the brand new laptop they send back.

    • David

      H:

      Great points.

      I will definitely seriously consider an extended warranty when I buy my next laptop.

      Thanks for stopping by

  • http://www.joetaxpayer.com JoeTaxpayer

    Perfect. I reached same conclusion. Laptop, got the Applecare. TV, no.
    Staples wants to sell warranty on damn near everything. A $100 hard drive with 3 yr guarantee? By the time that expires, the drive is worth about $12 and the data far more, so save the extra money and back up your data.

    • David

      Joe:

      Great point.

      You do have to look at the depreciation of the item as well when considering an extended warranty.

      Thanks for commenting

    • Edward Donovan

      Staples’ replacement for a hard drive is for 1 year PLUS the manufacturer’s warranty period, and you get the FULL amount back. Also, depending on your ethical stance, you only have to SAY it’s broken; they do not require proof.

      Studies have found that customers returning with their refunded money spend an average of 60% on top of it, so they WANT you to call in that hard drive. It keeps you shopping and spending money with them.

      I get the replacement on everything under $200 because I know I’m just going to get store credit when I call it in.

      As far as laptops, I’d say go for the laptop that is $XXX.xx cheaper and throw that warranty on it. You’re never going to notice the difference.

  • Skirnir Hamilton

    I am wondering about the likelihood of repair of a DVD/VCR. WE have had bad luck with DVDs and VCRs. I think we have had two different machines break about a week or two after the warranty ended. Anyone else have this problem? With the cheap cost of a DVD/VCR, it still may not pay to get an extended warranty. No idea really.

    • David

      Skirnir:

      I think you have just had a string of bad luck. Plus, with the cost of a new one being generally low, you vcould probably buy a new one for the cost of a warranty.

      Thanks for your input…

  • Graig

    David,

    With all your purchases, you still come out ahead without any extended plan.

    If you were referring to Consumer Reports and the 43% incidence of repairs; check again. The newest numbers for more recent years are much lower. Between 2005 – 2009, 16-21% (depending on brand) of laptop consumers had a least one major issue in the first few years of ownership. Well, how much of that was year 1? for discussion purposes, let’s say half. That leaves a repair rate of 8 – 11%. Of the 75,000 surveyed, how many issues were virus (software) related. Some I’m sure. You have to figure that a chunk of the 75,000 are not as savvy as others. So your REAL rate of failure certainly doesn’t justify a service contract, especially at the exhorbitant prices of the retailers.

    Think about this as well – most of the service contract pricing that is pegged to the product price is just that. MORE PROFIT and nothing (or very little proportionately) to do with additional repair risk to the seller!!!!!
    The consistency of the service contract price/product price ratio exists because the retailer figures that if you pay more for the product, you’ll pay more for the service contract, if so inclined.

    I’m in the industry, take it (your money too) to the bank.

    • Edward Donovan

      OMG NOT PROFIT!!!! Someone is going to get your money, the question is who and how much will they get.

      Either you buy the extended service (retailer or manufacturer) and pay ~$200
      Or you eventually buy a new laptop, which does the exact same things as the previous one, at $500+.
      Or you pay $200+ each time you need it repaired.

      Also, have you ever used a manufacturer’s warranty? There’s a reason they call it a LIMITED warranty. If you do not buy their extension, they bend over backwards to avoid having to fix your machine. Dell will only cover you for 90 days, parts and labor; after that, it is only tech support.

      • David Bakke

        Edward

        That’s a very interesting take–thanks for taking the time to comment!

  • David Bakke

    Graig

    All I can say is “Wow!”

    Thanks for the more updated info, and you have turned me back into a completely “anti-warranty” kind of guy!

    Thanks a lot!

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  • Harvey Congdon

    I had a situation today where Sears called and wanted to sell me an 39 month extended warranty on our 7 year old Kenmore stack washer and dryer for $19.00 a month for 12 months. I would be interested in hearing what your thoughs are on this

    • Davidbakke

      Harvey

      If its seven years old, I would probably hold off. The $225 you would be spending on it doesn’t seem like a good use of your money.

    • Davidbakke

      But if you feel you need it for peace of mind purposes and have the money to spend, go ahead. Ultimately, the choice is yours.

  • anonymous

    Whoever wrote this article has a biased experience with laptop warranties, as you can tell by the anecdote stated by the author. Not all extended warranties are like that you know. And some third party companies offer extended warranties.

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